Question

What are the three regulatory bodies in Australia’s financial system? What are their key responsibilities? What are the two main reasons for bank failure?

Answer 1

The three regulatory bodies in Australia’s financial system and their key responsibilities

• Australian Prudential Regulation Authority (APRA)

It manages Banking and Financial Sector of Deposit taking Firms like Banks, Pension policy provider, and Investment firms. APRA focuses on making policy guidelines for these firms to protect public interest. APRA also manages to grant permission to start a new firm under this category. Provides regulatory guidelines to hold minimum cash reserve and other statutory financial ratios for these firms.

• Reserve Bank of Australia (RBA)

RBA manages the economic and monetary policies of Australia's financial system. It is controlled by the Australian Govt. And under its operation, it majorly focuses on two things on priority

1. monetary policy of Australia
2. Maintaining Financial Stability of Australia

• Australian Securities and Investments Commission (ASIC)

It manages and regulates the complete business scenario of Australia by maintaining corporations in Australia. It also provides a guideline and regulatory framework for the corporation and Financial Service providers. It simply serving the regulatory guideline between corporations and consumers. They also provide and support consumer protection services against any financial service providers or corporations.

The two main reasons for bank failure :

1. NPA or Bad Debts: Non Performing Assets is the single biggest reason for Bank failure. Simply banks giving loans to corporations and Individuals becoming non-performing affects the bank's capital. Upon a certain limit of Bad debts bank fails because it will not be any position to honor depositors request.
2. Asset/liability mismatch: It may arise for many reasons like banks issues capital on a fixed rate of interest but provided loans on a variable rate. But due to sudden change in the economy if the interest rate changes banks' profitability hurts and may failure beyond a certain limit. Asset/liability mismatch also happens when there is difference between duration of Assets and liabilities of banks balance sheet.